When the euro was introduced in 2002, 12 of the 15 European Union countries adopted it, replacing their historic currencies. Great Britain, however, did not. The British pound has, historically, been strong in foreign exchange markets. And though the euro is the currency of so much of Europe, the British pound has almost always traded higher than the euro.
In the Beginning: 1999
The euro emerged as an electronic currency on Jan. 1, 1999. That meant that it could be traded on the foreign exchange market as a commodity. This was part of a several-step plan that began to be hatched in the 1970s to create a bank and a currency for all of Europe to better stabilise the region's economy. While the euro was an electronic currency, it generally traded between 1.4 euros to the British pound, to a low of 1.7.
Britain Opts Out
The British decided not to join the other countries changing its currency, though the issue was and continues to be one that prompts stormy debate. Economist and commentator Will Hutton said in a 2008 "Guardian" article that Britain always doubted the euro. First the country doubted whether the currency would ever be launched, then whether it would survive. Since the pound has generally held its value over both the U.S. dollar and the euro, it appeared the country made the right decision.
Cash Currency: 2002
The euro was introduced as a cash currency on Jan. 1, 2002. That meant euro dollars and cents would now be used in the countries that adopted the euro, rather than francs, marks and other historic currencies. At that time, one British pound was worth 1.62 euros. That year, the pound slipped only to one pound per 1.55 euros during the summer tourist season. Otherwise the pound remained strong, never dropping below one pound to 1.4 euros.
At the end of 2007, the value of the pound dropped steeply. It still remained above the value of the euro for most of 2008. But it was now hovering at 1.2 to 1.3 euros to the pound. At the end of 2008, for the first time, the pound sank lower than the euro. The British government blamed the currency's value loss to a bursting housing bubble and dropping interest rates, according to "The Guardian."
Hutton said the dropping of the pound below the rate of the euro in currency exchange businesses in Britain was an important psychological event for Britain. It gave renewed strength to the argument that Britain should join the other countries that use the euro. So far, the nation has not been convinced. As of late 2010, the pound has rebounded somewhat but remained at or below 1.2 euros to the British pound.